Semper Augustus 2021 Letter

Make sure you’re sitting down - 129 pages. Gonna take a while.

Page 96 - Intrinsic Value Per Share : $600,000 A/$400 B…


Chris Bloomstran seems to go back and forth a bit on the cash pile. Page 119 onwards:

We make a material upward adjustment to Berkshire’s reported profits that assumes much of Berkshire’s
cash will be put to good use, and reasonably soon. The adjustment adds $3.2 billion to GAAP earnings…

Assuming about $50B-ish(?) gets put to use, soon. And…

We are thus calling $72 billion a more or less permanent cash reserve.

Same as last year, leaving about $77B for investment. But…

Berkshire’s $149 billion cash balance (excludes cash held at BHE and BNSF) is within a normal range
when measured against equity and assets since the General Re deal.


It’s this historical perspective that allows doubt to creep into the method for assuming a higher return on much of the cash balance.


Is it aggressive assuming a return that’s not being earned currently? We don’t think so.


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Always look forward to this…gives me something to do while I await Buffett’s letter.


Interesting observation that Berkshire is reasonably likely to have a headline profit around $89bn for 2021, just a hair behind Apple’s $95bn.
It would be cool to win that contest.



" Interesting observation that Berkshire is reasonably likely to have a headline profit around $89bn for 2021, just a hair behind Apple’s $95bn."

If only Berkshire’s market cap would catch up!:grin:

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It would be nice to have Chris Bloomstran on the Berkshire board as he seems to know as much or more about Berkshire than just about anyone.


Totally agree Chris would be a fine choice, BD. He has plenty of skin in the game for 22+ years and he is not afraid to give informed, honest, and constructive criticism in letters past. I consider him more knowledgeable about the conglomerate’s every detail than anybody, other than Warren himself. Still digesting his current letter but love all of the details and brilliant piecing together of all of the moving parts and projections!


What do people here make of this section on page 79? Realistic?

“The base expectation is shaded in green, with profit at a 10% return on equity, capitalized at 18 times earnings. Under the base, if shares are bought back at 120% of book value, $79.1 billion in net income capitalized at 18 times yields a market capitalization of $1.424 trillion. On what would be a share count of 964 million, a 4.2% decline per year, the shareholder earns 328% over the next decade, an annual return of 15.6%. On little increase in the multiple to earnings, at 15 times the annual return drops to 14.1%. A decline in the multiple from today’s 13.9 times to 13 times still has the shareholder earning 12.9% per year.”


Of all his ways of valuing Berkshire, I prefer his adjusted normalized earnings. And using that marker, Berkshire closed today with a TTM P/E just under 15X. Very reasonable for such an amazing quality business.


Semper nailed it!


Just be aware regarding Semper’s Berkshire obsession that Rolfe/Wedgewood wasn’t the first, there have been many, who fled based on a misbehaving stock price and assets out the door.

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Or Winter,Sequoia,Tilson ect.

On the latest Grant’s podcast “Meme Stock Mania” 2/22/2022

Grant said Chris Bloomstran is a speaker at this year’s Grant’s conference.

Grant also interviewed Chris for his periodical…


I thoroughly enjoy reading Bloomstran’s BRK valuations, although sometimes I think he can be a bit aggressive with some of his adjustments to operating sub earnings and the optionality premium he slaps on the cash pile. His $48B in “adjusted normalized after tax earnings” for 2021 seems like a bit of a reach, as well as his base case of 10% ROE over the next decade, and an implied exit multiple higher than Berkshire’s share price has tended to be in recent history.

Put it all together, and Bloomstran sees a 3 bagger over the next decade, whereas I’m expecting something much closer to a 2 bagger from current prices based on my own slightly more conservative assumptions for normalized EPS, future growth, and exit multiples.

Maybe I’ll be pleasantly surprised.